Why you should always read the fine print on your insurance in South Africa

 ·22 Jan 2023

A recent case involving a Capetonian, his car and short-term insurance has reiterated the need for South Africans across the board to ‘read the fine print’ when entering into contracts with insurance companies, says legal expert Jean-Paul Rudd, from law firm, Adams&Adams.

In this case, the insured driver was driving when he hit a curb, lost control of his vehicle and collided with a pole.

“Their insurer, Insurance Underwriting Managers (IUM), rejected the claim for breaching a clause in his insurance contract, requiring the driver to ‘take all reasonable precautions and all reasonable care to prevent or minimise loss, damage, injury or liability,'” said Rudd.

When challenged by the driver, the Ombudsman for Short-term Insurance deemed that the insurer was in the right and they would not receive a payout.

This was due to a clause relied on by the insurer – generally known as the “reasonable precautions clause”. Rudd said that this is a very common yet controversial clause in insurance contracts.

The reasonable precautions clause states that parties must take appropriate measures to prevent foreseeable harm or damage. It is often used in contracts to hold parties accountable for taking necessary steps to avoid potential risks or hazards.

“Some courts have found these clauses to be counter-intuitive, given that one of the main aims of insurance is to protect an insured against the consequences of their actions,” said Rudd.

As such, these clauses are interpreted restrictively. Furthermore, negligent conduct – conduct below the standard expected from a reasonable person – is usually not enough to breach the clause; conduct of a reckless nature is usually required, meaning the insured knew of the danger associated with their actions but did not care about the result thereof.

“The degree of fault required from an insured may differ when it comes to positive obligations contained in insurance contracts. In Aspen Insurance v Sangster & Annand Ltd, the court found that an insured’s conduct does not need to meet the reckless threshold if “highly defined and circumscribed safeguards have been put in place”,” Rudd added.

Parties may also agree that negligence is sufficient for the reasonable precautions clause.

“By way of example, in Hollard Life Assurance Co Ltd v Van der Merwe, the insurance company’s liability was specifically excluded for claims arising from ‘suicide, self-inflicted injury or self-inflicted illness, whether intended or not, or voluntary exposure to danger or obvious risk of injury’. The insured deceased died from accidentally shooting himself, without having any intent to do so.”

“In other words, he was negligent in causing his own death. The court found the exclusion clause to be perfectly permissible under the circumstances notwithstanding the degree of fault required from the deceased to trigger the clause.”

An insurance contract is a binding agreement between the insured and the insurer. Rudd said both have specific obligations, such as paying premiums and indemnifying losses. Failure to comply with these obligations can result in claim rejections.

“It, therefore, pays to read and understand the fine print of an insurance contract.”

Commentary provided by Adams&Adams

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